Historically taxpayers have faced difficulty overcoming a
presumption against a change in domicile to a foreign
jurisdiction.
The US Tax Controversy Group at Withers Bergman successfully
defended a foreign domicile change at the New York State Division
of Tax Appeals in a potentially significant decision involving a
change of domicile from New York to the United Kingdom for personal
income tax purposes.
A New York State Administrative Law Judge concluded that the
taxpayer, represented by Withers, successfully established that he
changed his domicile from New York to the UK for the years
2006-2008. Matter of May, DTA No. 825173 (N.Y.S. Div. of Tax
Appeal, January 8, 2015). Although New York State has declined to
appeal the decision to the NYS Tax Tribunal, the determination is
significant for a number of reasons.
Under New York law, an individual's domicile continues until a
new one is established. The party alleging the domicile change,
whether the taxpayer or NYS, bears the burden of proving a change
of domicile by clear and convincing evidence. In this case, the
taxpayer had asserted a change of domicile from New York to London
during the years in question. At the examination level, the auditor
determined that the taxpayer had failed to prove an intent to
remain in the UK indefinitely. Consequently, the taxpayer was
considered a New York domiciliary for tax purposes, and significant
income tax, penalties and interest was assessed against him.
In reaching his decision that the taxpayer had met his burden of
proof, the ALJ rejected New York State's claim that proving a
change of domicile to a foreign domicile requires a greater showing
of proof than proving a change of domicile to another state.
Historically, taxpayers have faced difficulty overcoming a
presumption against a change in domicile to a foreign
jurisdiction.
The decision also makes clear that a taxpayer can successfully
demonstrate an intent to make a new location his permanent home,
where he is able to present objective evidence, including
documentation and credible testimony, which satisfies the
historical criteria utilized by the NYS Tax Tribunal to analyze a
change of domicile. Largely due to the credible and compelling
testimony of multiple witnesses, the administrative law judge
rejected the notion that a foreign domicile could not be
established where a taxpayer continued to maintain a New York
home.
Cases involving domicile changes are heavily fact-specific, and it
can be challenging for taxpayers to prove their subjective intent.
Establishing changes to a foreign domicile are particularly
challenging, as they present unique factual, legal, and procedural
issues that should be addressed at the audit level in anticipation
of potential litigation. Taxpayers can prevail, however, where they
present a compelling narrative supported by documents, testimony
and other evidence that should allow them to satisfy their burden
of proof.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
